BIR Ruling [DA-142-03]

May 5, 2003 BIR RULING [DA-142-03] 24 (C); 176 031-99 dated March 19, 1999 Bengzon Narciso Cudala Jimenez Gonzales & Liwanag SOL Building, 112 Amorsolo Street Legaspi Village, Makati City Attention: Atty. Hubert E. Molina Gentlemen : This refers to your letter dated August 17, 2000 stating that your client, John Holland Pty. Ltd., (JHPL) [formerly John Holland Construction & Engineering Pty. Ltd.] is a foreign corporation organized and existing under the laws of Australia with principal office address at 70 Trenerry Crescent Abbotsford Victoria 3067 Australia; that on December 31, 1998, Mr. Arturo Monge (Mr. Monge) subscribed to 16,667 shares of the capital stock of John Holland Joint Venture Subic, Inc. (JHJVS) for and in behalf of JHPL; that said subscription was paid in full by JHPL; that in the duly executed Trust Deed dated December 31, 1998 between JHPL and Mr. Monge, the latter specifically declared and acknowledged that JHPL is the beneficial owner of the subject shares and that Mr. Monge merely holds the shares as bare trustee for the sole and exclusive benefit of JHPL; that on June 30, 2000, JHPL decided and resolved to revoke the aforesaid trust deed; and that by reason thereof, an agreement was executed between JHPL and Mr. Monge whereby the latter returned the shares to JHPL. In connection therewith, you now request for confirmation of your opinion that "1. Since the transfer of the 16,667 JHJVS shares by the trustee, Mr. Monge, in favor of the trustor, JHPL, is merely a confirmation of title in favor of the beneficial owner and without monetary consideration, the same is not subject to either income tax or capital gains tax (CGT). The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject shares of stock; "2. Moreover, the said Deed is not subject to the documentary stamp tax (DST) imposed under Section 176 of the Tax Code of 1997, but only to the DST on certificates under Section 188 of the same Code; and "3. In light of the foregoing, there is no need to secure a Tax Clearance Certificate before the Corporate Secretary can effect the transfer of the subject shares in the books of JHJVS." In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. Under Section 24(C) of the Tax Code of 1997 generally imposes a final tax at the rates of 5% and 10% upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange, the rule does not apply in the instant case considering that there is no sale, barter or exchange of the 16,667 shares of stock of JHJVS since JHPL, is the real owner of the shares of stock involved that Mr. Monge held as a trustee. Accordingly, the transfer of the JHJVS shares from the Trustee, Mr. Monge, to the Trustor, JHPL, the real owner thereof, without monetary consideration and by virtue of the Trust Deed, is not subject to capital gains tax. Corollarily, this Office in BIR Ruling No. 031-99 dated March 19, 1999, has already ruled that ". . . the conveyance by the Trustee in favor of the Trustor of the subject properties which the former acquired by virtue of the Trust Agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the Trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties." 2. Moreover, the said Deed is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the Tax Code, supra . (BIR Ruling No. 115-94) 3. Finally, this will, therefore, serve as authority for the Revenue District Officer concerned to issue the Tax Clearance Certificate for the Corporate Secretary to transfer the shares of stock of JHJVS in the name of JHPL. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group